In early 2022, a thriving performance improvement consulting firm, let's call it "Brown Consulting", found itself struggling to boost its valuation in the face of stiff competition and the limitations of a service-based business model. The owners knew they needed to make a significant pivot if they wanted to see a step-change increase in valuation for a successful liquidity event planned for 2024.
After a process of strategy co-formulation, the owners, with the aid of The Silicon Valley Laboratory, realized the answer was to transition from a service to a product-based model. They saw an opportunity to leverage their expertise in data analytics and development of digital performance improvement tools to create a software-as-a-service (SaaS) platform for enterprise customers. It was a bold move, but it was the fastest path towards boosting valuation within two years. The owners focused on a key metric for rational valuation: the revenue multiplier. A consulting firm is typically valued at 1 to 5 times annual revenue run rate (ARR). A B2B SaaS firm has a significantly higher multiplier - as high as 80 times ARR.
The pivot was not easy. It required a complete overhaul of the company's operations, from designing new customer engagement processes to re-branding to hiring additional software developers to finding ways to monetize its platform. But through determination, perseverance, and agility, Brown Consulting successfully transformed into a B2B SaaS firm by the end of 2022.
In the end, the owners proved that even an established consulting firm could successfully pivot to a new business model with the right strategy and execution. By focusing on the rational component of the firm's valuation and making the difficult decisions necessary to implement the change, they achieved a step-change increase in their valuation and set themselves up for a future liquidity event.
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